Friday, February 11, 2011

United States Unemployment Rates Drop, But the Department of Labor Report Is Still Disappointing

CNN Money: January Jobs Report Disappoints
BBC: U.S. Unemployment Down in January as Jobless Give Up
BBC: U.S. Consumer Spending ‘Best in Three Years’
The Wall Street Journal: Economy Adds Few Jobs
NPR: Jobs Report: Not As Bad As It Seems. (Also: Not As Good As It Seems)
NPR: Unemployment Drops to 9 Percent in January

The Department of Labor released a report indicating that the unemployment rate fell from 9.4% in December to 9% in January, resulting in the lowest level of unemployment since April of 2009. The Bureau of Labor Statistics stated that this percentage drop is the equivalent of about 600,000 more people being employed in January than in the previous month. This drop materialized despite the creation of only 36,000 jobs in January, a number that fell well short of the 146,000 jobs that experts predicted would be created in the month. However, there are currently a reported 13.86 million people in the United States who still cannot find jobs.

The drop in the unemployment rate and the failure to meet the goal for job creation seem to be inconsistent with one another. Economists have several theories for how the unemployment rate can decline, but job creation numbers fall short. First, experts examine the sources of the numbers used in calculating the data and point out that the numbers come from two different surveys. The first, which determines the unemployment rate, is a survey of households. The second survey, which determines the total job creation number, polls employers. These different sources of information may be responsible for the inconsistency in the report. Additionally, after the 2010 census, the government changed the population size it uses to calculate the unemployment rate; this revision makes the drop in the unemployment rate seem greater than it actually was.

Despite the lower-than-expected unemployment figures, there were some promising statistics within the Department’s report. The number of long-term unemployed people slightly declined. There were more job creations in December and January than in previous months. Additionally, the number of people that reported they were working part-time because they could not find a full-time job decreased by half a million. The private sector has been slowly, but consistently, adding jobs during the past year. Experts predict that this number will continue to grow because currently companies, instead of hiring more people, have been trying to increase their existing employees’ output. As demand for their products increases, these companies will have to hire more employees to keep up with the growth. Another hopeful beacon for the American economy was that consumer spending in 2010 was the highest it has been since the financial crisis in 2007. Consumer spending comprises two-thirds of the American economy. Experts predict that this number could continue to rise in 2011, as long as the job market keeps slowly progressing.

Economists differ on the significance of the report. Some think that the number of jobs created is not indicative of the economy as a whole, but rather the result of a temporary setback; a Department of Labor survey suggested that the job creation number may have been below the expected amount due to severe winter weather that kept workers at home and companies from hiring more employees. Other experts argue that the number fell so far short of the monthly goal that it probably signifies a long-term decline in overall employment levels. However, most economists agree on one thing–the report was disappointing, posting numbers that fell well short of projected goals.

1. Which is more indicative of the state of the economy: the unemployment rate or the number of job creations?
2. Does this continued decline in unemployment indicate the economy is recovering?

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